South Korea’s officials call it “smoothing” when they intervene in the currency market.

Currency traders call it “closing-rate management.”

That’s because often the intervention happens near the end of the day, the end of the month or the end of the year.

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What happened in the local currency market Tuesday is a good example of a daily closing rate-management.

Foreign-exchange authorities – that is, the Bank of Korea acting at the behest of the finance ministry — are believed to have bought the U.S. dollar at intervals.

Bloomberg News

Bank of Korea headquarters in Seoul, where the foreign exchange intervention happens.

First, according to traders, the authorities bought at 1,122 won per dollar. But then the rate kept falling. So they bought again at 1,121. And again, the rate kept falling. So they bought again at 1,120.

“I think the authorities were being pretty obvious today about trying to prevent the dollar from falling below 1,120 won,” a currency trader said.

Last Thursday, the last trading of 2010, traders believe foreign-exchange authorities were trying to influence the year-end closing rate.

They saw buying of dollars at several different levels: 1,140 won per dollar, 1,136 won per dollar and 1,135 won per dollar.

In the end, the dollar ended 2010 at 1,134.80 won.

Traders said foreign-exchange authorities bought the dollar on the last day of 2009, in an attempt to keep the won’s year-ending value relatively weak.

But at the end of 2008, they sold the dollar heavily on the last day of the year. At that time, the government was coping with the onset of the economic crisis that began in September 2008. They were worried that the won had become too weak against the dollar and were trying to prop up its value.

The year-end rate is particularly meaningful because many corporations use it as a reference for bookkeeping for the year.

The dollar-buying in 2009, 2010 and even on Tuesday has been influenced by the belief that South Korea’s recovery from the 2008 downturn was helped by the won’s weakness against other currencies. That made South Korea’s exports less expensive versus goods from places like Japan where the currencies are stronger by comparison.